Retail Investors and Corporate Governance: Evidence from Zero-Commission Trading

We examine the effects of the sudden abolition of trading commissions by major brokerages in 2019 and subsequent increase in retail-investor base on corporate governance. Firms with greater retail ownership experienced higher abnormal returns around the abolition of commissions. Firms with positive abnormal returns in response to the abolition of commissions subsequently saw decreases in institutional ownership and a decrease in shareholder voting. These firms also experienced a decline in environmental, social, and governance (ESG) scores, which is concentrated in governance measures. The results suggest that even relatively modest entry costs can be important in determining retail-investor influence in corporate governance.